Tribune column on the banks

A week after I became shadow chancellor I had a meeting with a group of people in the financial services industry. One of them said: “Why do you politicians keep going on about the banks? Housewives aren’t talking about the banks, they’re talking about cuts to public services”.

I listened to this open mouthed and then explained to him that in my constituency, and up and down the country, men and women are still concerned and angry about the irresponsible actions of the banks – actions that led to the global financial crisis and plunged the world into a major recession.

That anger will not be quelled by the fact that, as part of George Osborne’s deal with the banks, the Tory-led government is giving the banks a tax cut this year – while thousands of police officers are being cut and families on low and middle incomes are being hit hard by the VAT rise and child benefit freeze.

That’s why I believe it is only right and fair to say that the bank bonus tax should be repeated this year on top of the annual bank levy. The government should use the money raised to build thousands more affordable homes, support small businesses and create over 100,000 jobs – because getting people off the dole and back to work paying taxes is the best way to get the deficit down.

Nor will anger be abated by figures this week which show that in the first three months of this year bank lending to small and medium sized businesses was more than £2 billion below the government’s target. The targets were announced in February by George Osborne who boasted that he had reached a tough and demanding agreement with the banks on lending, pay and bonuses – the so-called Project Merlin deal.

Just at the time when we need small and medium sized businesses to grow so we can get our economy moving again, it is worrying that bank lending to small businesses is falling short. And while the banks are understandably blaming this year’s economic slowdown for a lack of demand for new lending, businesses I talk to are fearful that the government is letting the banks off the hook.

When the Project Merlin deal was first announced, I warned that the government’s deal with the banks was weak and toothless. And while there is still time for lending to accelerate and the government’s targets for this year to be met, the early signs are not encouraging. So George Osborne needs to explain to businesses what more he will do to get the economy moving and get banks lending to small businesses so that the government’s targets do not continue to be missed.

For the longer term I have said there are three tests for George Osborne on banking reform. First, we need the right kind of structural reforms to our banking system to protect customers, avoid the kind of bank bailouts we’ve seen in recent years and ensure taxpayers don’t take on the burden of the banks’ high-risk activities. Of course we should have been tougher in regulating the banks – something which governments, central banks and regulators around the world got wrong.

Second, we need international agreement on reforms to ensure that we protect the hundreds of thousands of jobs dependent on financial services here in Britain. We need a more diverse economy for the future and a sensible and balanced approach means valuing manufacturing as well as our creative and service industries, including financial services.

And third, as this week’s figures on bank lending show, we need a banking system that delivers for the long-term interests of the wider economy and supports investment by businesses large and small to drive growth and jobs.

Just as the short term goals to boost lending to small businesses are being missed, I fear these longer term challenges are in danger of being ducked too. Businesses, the public, and the thousands of workers on average salaries in places like Leeds, Edinburgh, Bristol and around the country whose jobs depend on financial services, deserve better.

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Posted May 27th, 2011 by Ed's team

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